STOCK OPTION PLAN AND WARRANTS

9 Months Ended

Sep. 30, 2012

STOCK OPTION PLAN AND WARRANTS [Abstract]

STOCK OPTION PLAN AND WARRANTS

NOTE 13 – STOCK OPTION PLAN AND WARRANTS

The Company has a Stock Option Plan (the Plan) effective January 2, 1999 and amended in 2002 and 2004, which provides for the issuance of qualified options to all employees and non-qualified options to directors, consultants and other service providers.

A summary of the status of stock options as of September 30, 2012 and December 31, 2011 is as follows:

	9/30/2012					12/31/2011
				Weighted					Weighted
	Number			Average		Number			Average
	of			Exercise		of			Exercise
	Shares			Price		Shares			Price
Outstanding at beginning of year		5,645,202		$	1.10		3,484,833		$	0.66
Granted		2,196,775		$	0.66		2,298,702		$	1.21
Exercised		(44,600	)	$	1.19		-		$	-
Expired and Cancelled		(40,000	)	$	0.86		(138,333	)	$	2.18
Outstanding at end of period		7,757,377		$	0.98		5,645,202		$	1.10
Exercisable at end of period		6,999,953		$	1.02		5,317,003		$	1.13

During the nine months ended September 30, 2012, the Company granted 2,196,775 options.  Stock based compensation for the three and nine months ended September 30, 2012 was $572,295 and $1,032,267, respectively.  As of September 30, 2012, the unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan was $509,212, of which $212,527 will be recognized in the fourth quarter of  FY 2012 .

During the nine months ended September 30, 2011, the Company granted 2,058,702 options.  The total fair value of options vested during the first nine months of 2011 was $1,869,207.

The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model.  This model uses the assumptions listed in the table below.  Expected volatilities are based on the historical volatility of the Company's stock.  The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	9/30/2012
Weighted average fair value per option granted	$	0.38
Risk-free interest rate		0.34- .42	%
Expected dividend yield		0.00	%
Expected lives		2.5996
Expected volatility		98-103	%

As of September 30, 2012, the Company had reserved 20.0 million shares for issuance under the Plan.  As of September 30, 2012, the Company had 6,922,567 options available for grant under the Plan. (20,000,000 less 7,757,377 options less 501,800 director shares less 4,818,256 options exercised = 6,922,567).

Stock options outstanding at September 30, 2012 are as follows:

				Remaining		Average
		Options		Contractual		Exercise		Options
Range of Exercise Prices		Outstanding		Life		Price		Exercisable
$	0.01-$1.50		7,547,377		3.3	$	1.17		6,789,953
$	1.51-$3.00		210,000		2.4	$	1.49		210,000
			7,757,377		3.5		0.99		6,999,953

Warrants

As of September 30, 2012, the Company has warrants outstanding to purchase 23,604,781, shares of the Company's common stock, at prices ranging from $0.01 to $1.50 per share.  These warrants expire at various dates through February 2017.    There were 650,000 warrants issued in

the nine month period ended September 30, 2012.  The summary of the status of the warrants issued by the Company as of September 30, 2012 and December 31, 2011 are as follows:

	9/30/2012					12/31/2011
	Number of Shares			Weighted Average Exercise Price		Number of Shares			Weighted Average Exercise Price
Outstanding at beginning of year		23,736,108		$	1.55		18,779,753		$	1.59
Granted		650,000		$	0.83		5,130,046		$	1.66
Exercised		(390,923	)	$	0.42		(56,489	)	$	0.06
Cashless Exercises		(206,511	)	$	0.86		-
Expired and Cancelled		(183,893	)	$	14.73		(117,202	)	$	13.72
		23,604,781					23,736,108
Outstanding, end of period		23,604,781		$	1.45		23,736,108		$	1.55
Exercisable at end of period		23,604,781		$	1.45		23,736,108		$	1.55

During the first and second quarters of 2012, investors did not exercise any warrants.  During the three months ended September 30, 2012 investors exercised 390,923 warrants for cash with the Company receiving gross proceeds of $163,820.  Also, during the same period investors exercised 206,511 warrants on a cashless basis which resulted in the issuance of 111,002 shares of Common Stock.

During the first nine months of 2011, investors exercised 56,489 warrants.